The Gang of Six framework: A step backward for Social Security reform

Charles Blahous

Charles Blahous is a research fellow with the Hoover Institution and a senior research fellow at the Mercatus Center. He serves as one of the two public trustees for the Social Security and Medicare programs. He is also the author of Social Security: The Unfinished Work.

This week the Senate’s “Gang of Six” unveiled their deficit-reduction framework. I strongly support the conceptual objectives of the Gang to promote deficit reduction and general bipartisan cooperation and to build off of the Simpson-Bowles fiscal commission’s recommendations. A careful examination of their framework, however, reveals that it is a significant step back from bipartisan Social Security reform. The principal attributes of their Social Security framework are as follows:

1) Lack of support for the substantive reforms in Simpson-Bowles. The Simpson-Bowles Social Security plan would correct program finances by, among other things, gradually increasing eligibility ages, constraining the growth of benefits above inflation for higher earners and increasing the cap on taxable wages. The only financial correction specified by the Gang affecting Social Security is general reform of the Consumer Price Index (CPI), a technical refinement in the measure of price inflation with effects spread throughout many government programs. In sum, the Gang of Six declined to embrace any of the Simpson-Bowles financial corrections specific to Social Security itself.

2) Specificity only with respect to a Social Security benefit increase. The framework embraces a new Social Security “minimum benefit” at 125% of the poverty line. The framework implicitly sides with those who endorse further benefit increases before devising needed financial repairs to Social Security, and against those who would offer them as a sweetener to help pass comprehensive reform. Offering such benefit increases in advance of comprehensive financial corrections would make those eventual repairs still harder to enact.

3) Erecting procedural and rhetorical barriers to Social Security reform. The text of the document offers repeated obeisance to a talking point common on the political left: It asserts that Social Security reform should be “isolated from deficit reduction.” In reality, however, Social Security is a significant contributor to the federal deficit, with current policies directly intermingling its finances and the general government accounts (as general revenues are transferred to the program to offset a payroll tax cut). And while reformers should perhaps favor “separating” Social Security if this expedites action, this framework does not so expedite. It instead indicates that Social Security reform should proceed “if and only if” a deficit-reduction plan first receives 60 votes in the Senate. This is highly problematic for a program with its own shortfall to resolve irrespective of problems elsewhere in the budget.

4) Embrace of an incomplete scorekeeping metric that tilts toward accounting gimmicks, tax increases and intergenerational inequity. Perhaps the most problematic aspect of the framework is that it would adopt the standard of “75-year solvency” with “decennial reviews” for Social Security finances. Most recent bipartisan efforts have instead adopted a standard judging Social Security plans in part by whether they attain annual balance between incoming taxes and outgoing payments over the long run. The Simpson-Bowles plan complies with this standard. This is important because “75-year solvency” is biased heavily in favor of repeated stopgap tax increases. If, for example, Social Security’s tax cap were wholly eliminated today, then under the Gang’s proposed scoring rules the program’s shortfall would be declared essentially solved. But upon the first “decennial review” the majority of the problem would re-appear, except that then millions of additional Baby Boomers would already be in retirement and it would be too late to adjust the rising cost of their benefits. The metric also offers no protections against “balancing” Social Security’s books solely by accounting maneuvers to swap debt between government accounts. In sum, for those concerned about the tax burdens being passed to younger generations, this metric is the wrong choice.

5) Continued absence of bipartisan support for specific reforms. History strongly suggests that successful Social Security reform must be bipartisan. In the current Congress, however, the only plans put forward meeting this standard have been Republican plans. The willingness of Democratic Senators Kent Conrad and Dick Durbin to support such a plan on the Simpson-Bowles commission is praiseworthy. But with the Gang of Six walking away from its provisions, the perception is fueled of an insurmountable partisan divide within Congress over specific Social Security reforms. To create momentum for action, at some point lawmakers from both sides need to step forward; the Gang of Six’s failure to do so sends a worrisome signal in that regard.

We should hope that the Gang of Six continues its efforts and in the future develops specific reforms to place Social Security on a sustainable forward path. But the current Gang of Six framework is a considerable step backward from bipartisan Social Security reform.

(This is a condensed version of an article that was published in E21.)

Charles Blahous is a research fellow with the Hoover Institution and serves as one of the two public trustees for the Social Security and Medicare programs. He is also the author of Social Security: The Unfinished Work.

Why didn’t Obama use the Bisics from the Simpson-Bowles fiscal commission’s recommendations and build on it back when the recommendations were first released? Becuase Obama likes to play Political Chicken and make everything Important a Last Minute Rush Deal so he can sneak in things.

Do NOT take away incentives to save for retirement.
Do Not take away incentives to own a home.
Do Not take away incentives to make donations to non-profit organizations.